Sinomax H1 profits hit by TDI price and US setup costs

Hong Kong – Sinomax saw ‘substantial’ revenue growth in its China and North American businesses, but profits fell the firm said in its half year results.

Sales increased by around 26.9% to KH$1.95 bn ($ 250 m) in the first half of 2017, compared with HK$ 1.53 bn in the 2016 half; but gross profit fell by HK$ 23.5m to HK 395 m in the half. The firm’s gross profit margin fell from 27% in the first half of 2016 to 20% in the 2017 half year.

This was because the cost incurred in setting up a trial run at its plant in La Vergne, Tennessee led to a HK$21.8 m loss. The significant increase in the price of TDI over the period, which was not completely passed on to customers,  also contributed to the firm’s performance.

Recruiting more sales staff in the US led to a HK$ 14.7m rise in selling and distribution costs which reached HK$ 231 m in the half. Further administrative support for the US business saw expenses in this area grow by HK $ 15 m to HK$ 107 m. The firm also spent money promoting the Zeopedic, PureLUX and Octaspring brands.

Sinomax, which has repeatedly issued profit warnings said there will be no interim dividend. After the first half of 2016, the firm paid HK$ 0.6/share

Net profit at the firm fell to HK$ 9.9m in the half, compared with HK$ 42m for the half which ended 30 June 2016.

Looking ahead the firm said it expects the US plant to make a profit by the end of 2017, and points to recent agreements with Serta Simmons and Mattress Firm. ‘We expect sales to grow in the coming years,’ the firm said.

Sinomax said that it had absorbed some of the TDI price increases ‘to obtain a larger market share. This was shown by sales in China which grew by around 37.3% compared with the same period in 2016.'

The company added: ‘We believe a larger market share will generate more sales and profit for the Group in the long run.'  Sales in North America were up 22% to HK$ 839 m, while in Europe they fell by 43% to HK$ 39m. Non-geographically reported eCommerce sales grew by 75.4% to HK$ 35m in the half.

The firm added that it ‘will continue to upgrade machinery to improve production efficiency and increase competitiveness.’